Question

Cullumber Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $30,840 at the beginning of each year. The first payment is received on January 1, 2020. Cullumber had purchased the machine during 2016 for $103,000. Collectibility of lease payments by Cullumber is probable. Cullumber set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Cullumber at the termination of the lease. Click here to view factor tables.

Compute the amount of the lease receivable. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.) Amount of the lease receivable $enter a dollar amount of the lease receivable rounded to 0 decimal places

Prepare all necessary journal entries for Cullumber for 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit 1/1/20 enter an account title to record the lease on January 1 enter a debit amount enter a credit amount enter an account title to record the lease on January 1 enter a debit amount enter a credit amount enter an account title to record the lease on January 1 enter a debit amount enter a credit amount enter an account title to record the lease on January 1 enter a debit amount enter a credit amount (To record the lease) enter an account title to record the first lease payment on January 1 enter a debit amount enter a credit amount enter an account title to record the first lease payment on January 1 enter a debit amount enter a credit amount (To record the first lease payment) 12/31/20 enter an account title for the journal entry on December 31 enter a debit amount enter a credit amount enter an account title for the journal entry on December 31 enter a debit amount enter a credit amount

Suppose the collectibility of the lease payments was not probable for Cullumber. Prepare the necessary journal entry for the company in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 1/1/20 enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount

Suppose at the end of the lease term, Cullumber receives the asset and determines that it actually has a fair value of $920 instead of the anticipated residual value of $0. Record the entry to recognize the receipt of the asset for Cullumber at the end of the lease term. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit 1/1/20 enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer-1:

Amount of lease receivable = $30,840 × 6.58238 = $203,001

Answer-2:
Date	General Journal	Debit	Credit
1/1/2020	Lease receivable	$   203,001
	Cost of goods sold	103,000
	Sales revenue		$      203,001
	Inventory		103,000
1/1/2020	Cash	30,840
	Lease receivable		30,840
12/31/2020	Interest receivable (203,001 - 30,840) × 6%	10,330
	Interest revenue		10,330

Answer-3:
If the collectibility of rent payments is not probable for the lessor, the lessor does not derecognise
the asset or recognise the selling profit on the lease. Instead cash receipt is recognised as deposit liability.
Date	General Journal	Debit	Credit
1/1/2020	Cash	30,840
	Deposit liability		30,840